Last year, my husband and I bought our first home. When we crunched the numbers we realized that we were comfortable spending much less than the bank had approved us for. I talked to real estate and finance experts about why this is a good idea for this article on Daily Worth.
Since the 2008 financial crisis (which was fueled in large part by a real estate bubble), regulations have been put in place to cut down on predatory lending, most notably through the Title XIV of 2010's Dodd-Frank Act, which is called the Mortgage Reform and Anti-Predatory Lending Act. The act established national underwriting standards for residential loans, but some consumers are still approved for mortgages that are unrealistic for them when it comes to monthly payments.
Tasha Bishop, director of strategic alliance and business development at Apprisen, a financial services nonprofit sponsored in part by the United Way, estimates that about 35 percent of mortgages that are approved are unrealistic for consumers. What’s more: Many people “really trust the lender’s numbers and think that if they’re approved, they must be able to afford it,” Bishop says. But this isn’t always sound financial advice. Just because you can get approved for an expensive house doesn’t mean you should buy it.
Even with regulations in place, remember that banks are in the business of creating loans. Lenders “have incentives to give out mortgages, and to be positive and aggressive,” says Liz Miller, a certified financial planner and president of Summit Place Financial Advisors in New Jersey. Be skeptical and look out for your own interests. To avoid taking on more than you can handle, here’s what to keep in mind during the home loan process — and why you shouldn’t hit the top of your approved price range.
Read the rest of the story at Daily Worth.
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